The Justice Department has won a tax shelter case involving Dow
Chemical, in which the company was accused of creating approximately $1 billion
in phony tax deductions in a scheme designed by Goldman Sachs and lawyers at
King & Spalding.
A federal court in Baton Rouge, La., on Monday rejected two tax shelter transactions entered into by Dow Chemical that purported to create approximately $1 billion in phony tax deductions. In addition to rejecting the tax benefits from the shelter transactions, Chief Judge Brian A. Jackson also imposed penalties.
A federal court in Baton Rouge, La., on Monday rejected two tax shelter transactions entered into by Dow Chemical that purported to create approximately $1 billion in phony tax deductions. In addition to rejecting the tax benefits from the shelter transactions, Chief Judge Brian A. Jackson also imposed penalties.
The schemes were allegedly created by Goldman Sachs and the law firm of King & Spalding, according to prosecutors, and involved creating a partnership that Dow operated out of its European headquarters in Switzerland. The case dates back to transactions Dow started in 1993 that involved patent transfers to company subsidiaries.
Chief Judge Jackson wrote in his 74-page opinion that the government was
correct to reject the artificial tax benefits created by these schemes that
were designed to exploit perceived weaknesses in the tax code and not designed
for legitimate business reasons.
The judge noted that “tax law deals in economic realities, not
legal abstractions.”
Jackson also wrote that penalties were appropriate because
any reasonable and prudent person should have known that the artificial tax
benefits created by the scheme were “too good to be true.”
He noted in his
opinion that “Dow viewed its tax department as a profit center,” and had at its
disposal “numerous lawyers and tax professionals.”
Assistant Attorney General Kathryn Keneally of the Justice
Department’s Tax Division praised the Louisiana court’s opinion.
“It is offensive to all taxpayers who pay their fair share when
our largest corporations believe that they can claim hundreds of millions of
dollars in tax deductions that are manufactured by abusive tax schemes,”
Keneally said in a statement.
She thanked the agents and attorneys at the
Internal Revenue Service who assisted the Justice Department, as well as Tax
Division trial attorneys, Thomas Sawyer, Robert Welsh, Thomas Koelbl and Philip
Schreiber.
"Dow is disappointed by the trial court's decision.” The
company added that it believed the judge’s opinion was not supported by the
facts and applicable law and it is exploring all of its options, including
appeal.
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Contact the Tax Lawyers at Marini & Associates, P.A.
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